Imagine a group of retailerson safari in Africa, walking through the jungle. It soon becomes obvious that they arebeing stalked by a very hungry lion. The guide has disappeared over the horizon with thegun, and they are all alone. As the lion gets nearer it becomes inevitable that theretailers will become supper for the lion. As they face this beast all sorts of improbableideas flash through their minds as to how to save themselves. Suddenly one of theretailers takes his pack off his back and puts his running shoes on.‘You’rewasting your time, you will never outrun the lion’ one says. He replies, ‘Idon’t have to outrun the lion, I just have to outrun the rest of you’.
This scenario was put byDerek Jones, European Director of Operations for Gerber Information Systems at the recentapparel industry ‘Activating the Supply Chain’ conference sponsored by JBA andIBM.
Imagine the natives had aparticular name for this lion, which, when translated, meant “lower consumerspend”, or, had it been an even worse lion, ” the stock market concern”.‘That’, Derek went onto explain, ‘is exactly the position that theretailers are in today, so don’t look for a rational response’. The retailersare going to have to fight with, and outwit each other in order for them to survive andgrow. They are going to need their running shoes, as will the suppliers in order to keepup. ‘Retailers and suppliers alike who don’t run will be eaten’.
With a back drop ofincreasing competition, tighter margins, the need for increased styling, quicker response,changing consumer demand and rapidly developing global markets, this internationalindustry conference, held recently both in Birmingham and Brussels, focused on the currentcompetitive issues facing apparel and footwear manufacturers and distributors. The aim ofthe conference was to help businesses take tighter control in global markets and cameabout as a response to findings in the recent JBA international apparel industry surveywhich looked into key factors of concern to the industry.
The ways and means ofachieving tighter control is complex and thus leading independent specialists were invitedto tackle key issues focusing around the supply chain, the pipeline leading from the rawmaterials to the final product consumer including all the manufacturing and logisticalprocesses in between. The macro stages such as design, preproduction, etc were discussed,as were the micro stages where every element, for example, on-line credit checking of thecustomer on receipt of an order, needs to be critically examined. As well as thedevelopment of partnerships and the stream lining of the critical path, both macro andmicro economics were also considered, looking at the financial stability, not just ofperspective partners, but of the countries where those partners are based.
As Dr Ann Walker from theUniversity of Leeds pointed out; ‘With more than two fifths of the world economies inrecession there is now a serious risk of global recession…The economic casualty listmakes depressing reading. Japan and most of the rest of East Asia are in deep recession. Aforecast that GDP is expected to fall by 15% in Indonesia, and by over 7% in South Koreaand Thailand, this year is probably wildly sanguine. Russia effectively has defaulted onits debt, the rouble is of little value if any, whilst its economic predicament worsens bythe day. China may yet have to devalue the Yuan; Japan still fails to resolve its bankingproblems; the Hong Kong dollar has fallen sharply in value – around 20% – and is stillunder severe pressure, and Latin America now teeters on the brink of major depression.
‘Some of the developedeconomies – the UK and Canada – have for some time been showing signs of slowing down.Wall Street gains peaked recently, and tumbling share prices are claimed to have wipedalmost $4 trillion off the world’s financial wealth over the past two months – theequivalent of Japan’s GDP. And last week even the dollar at last began to show realsigns of weakening.
‘Are there any signsof growth? Well, India’s economy has been enjoying a reasonable level of economicgrowth – or rather it was, until the government there determined on a nuclear programme.The resulting embargo has effectively halted what progress the economy there recently wasachieving. This scenario is repeated in Pakistan.
‘Or – what aboutTurkey? That economy has been expanding very successfully recently, despite continuinginflationary trends in the lira. But the recent problems encountered by Russia botheconomically and politically have proved disastrous to the countries surrounding itsborders and which continue to rely on the strong trading links which were originallyforged during the communist period and before. Because the rouble is virtually worthless,life is maintained very largely – and at all levels – through barter and exchange -notably via the “suitcase” trade which has been plied between Russia, the formerCIS territories and Turkey. For Turkey has been swift to exploit the opportunities offeredby her hinterlands in textile and garment manufacturing. Such initiatives are now underserious threat, as the economic crises hitting Russia and Asia have deepened. As resultTurkey’s textile and clothing industry which, typically, has represented an importantforerunner in the development of that economy, is now feeling the cold. Meanwhile otherinvestment into the Asian economies to the east of Turkey is now looking shaky’
Ann went onto explain thatsupply chain management also cannot ignore the importance of differing mind set andbusiness norms of the many cultures which may be involved in the transactions which takeplace within the chain. Banking arrangements, customs administration, transportation and amyriad of other problems can all lead to transaction costs and hold ups in the system. Ifthey can affect operations within a single organisation, how much more likely are they tooccur between a series of separate autonomous organisations?
The traditional solutionhas been the building of buffer stocks to allow for shocks occurring within the chain ofrelationships, but stocks are costly, with a risk of unsaleable goods, at whatever pointin the chain they may occur. The implications of stocking and destocking cycles arecomplicated further by the growing amplitude of the cycle the further upstream it isencountered. The retailer suffers least in this regard, but is quickest to put the onus onsuppliers further back in the chain. Furthermore the quickening seasonality now looked forby the volume retailer chains puts suppliers at even greater risk.
The end consumer, PeterWillmot of Kurt Salmon Associates, pointed out is also changing. Apart from the factcurrent consumers are becoming older (and research shows the older consumer spends less onapparel), more demanding, value orientated and technology literate, new consumers areemerging as we move towards one global trading market. Consider for a moment that if 5% ofthe Indian population became a purchaser for Western products, this market size wouldequate to 25% of all of Europe. As India becomes more wealthy, and this market sharebecomes 10% (predicted to be by 2010), the market will be equal to all of Europe. Thuscompanies need to re-examine their marketing, product, distribution and sourcingstrategies to respond to these new markets. To do this, he explained, the key focus shouldbe on the 4D’s (Design, Development, Distribution and Display) with InformationTechnology required to integrate businesses and competencies.